"Restoring the Fiscal Balance"

Notes for an address
by the Honourable Michael D. Chong,
President of the Queen's Privy Council for Canada,
Minister of Intergovernmental Affairs and,
Minister of Sport

An address to the University of Regina Executive MBA Class
Regina (Saskatchewan)

August 30, 2006

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     Thank you to Dean Garnet Garven and Professor Anne Lavack for having invited me here today. It is a real honour and a pleasure to be part of your class.

     As you may know, I'm on a bit of a tour of the country. I started just over a week ago, and have now been to New Brunswick, PEI, Nova Scotia, Quebec, Newfoundland, then a short hiatus in Toronto, Fergus and Guelph, then back to Nova Scotia, and out to Vancouver, Edmonton and now here.

     I undertook my first cross-country tour as Minister of intergovernmental Affairs in the spring at the behest of the Prime Minister, who asked me to speak to my colleagues in the provinces and territories about the fiscal balance.

     This now is my second round of consultations, and it is more specifically about how we might limit the federal spending power.

     But since I didn't have a chance to speak with you during round one, I'd like to spend some time on that issue.

Today, I’d like to tell you about Canada’s new government’s plans to restore fiscal balance and renew federalism in Canada, a debate that has more recently been framed in terms of the fiscal imbalance or the fiscal gap.

     This is a complex debate, full of dizzying numbers and details, so I intend to speak with you in plain language on this topic.

     I'd like to share what I perceive to be the five broad causes of the fiscal imbalance within the Canadian federation.

     First, large, unplanned and unanticipated federal surpluses of recent years have contributed to the imbalance. While the restoration of Canada's fiscal health has been a positive development, federal surpluses over the last eight years have generally been larger than anticipated, and the federal government has not been transparent with Parliament, Canadians and other orders of government.

     These unplanned federal surpluses have led to federal spending in areas of provincial jurisdiction, often at odds with provincial priorities and policies.

     They also resulted in large year-end spending that was not always guided by a pre-announced policy framework.

     This year-end spending was often in areas of provincial responsibility and announced with little to no consultation with provinces and territories.

     A third cause of the fiscal imbalance was the cuts in federal transfers to the provinces and territories in the mid-1990s.

     While overall federal transfers have now been restored to their pre-restraint levels, much of the focus of these efforts has been to ensure long-term predictable funding to health care, reflecting the priorities of Canadians.

     As a result, federal funding in support of other areas, such as post-secondary education and training, has not been put on a long-term, predictable track.

     One-off deals recently signed between the previous government and various provinces and territories have also contributed to the imbalance.

     The confidence of Canadians in the overall fairness of federal programs was undermined through these one-off efforts, as federal actions were seen to be moving away from the principle of equity among provinces and territories.

     Finally, also contributing to an imbalance within the federation was the ongoing wrangling that has, at times, characterized the way the different orders of government dealt with each other.

     Canadians have told us that they want governments to put aside their jurisdictional arguments and move forward on resolving the issues that affect them most. The time has come to establish a new relationship with the provinces that is open, honest and transparent.

     Canada's new government believes that efforts to restore fiscal balance need to be principle-based. We have therefore set out five guiding principles:

1)     Greater accountability through clarity of roles and responsibilities between the orders of government;
2)     Responsibility and transparency in budget planning;
3)     Predictable, long-term fiscal arrangements;
4)     Greater competitiveness and efficiency of the economic union; and
5)     Effective, collaborative management of the federation.

     Based on these principles, our government has already taken action to restore fiscal balance in Canada. Budget 2006 invested in core federal responsibilities, such as national defence, border security, Aboriginal peoples, emergency and pandemic preparedness, and the RCMP, and there were more tax cuts for individuals in Budget 2006 than in the previous four federal budgets combined.

     But more remains to be done.

     We are carefully considering the recommendations of the O=Brien Report on Equalization and the Council of the Federation report on fiscal imbalance, as well as other stakeholder reports such as that of the Federation of Canadian Municipalities.

     This summer, the Government is also seeking the views of Canadians and is consulting with the provinces and territories.

     In the coming months, the Government will bring forward broad proposals with the intent to implement them in Budget 2007. We will propose a new approach for allocating unplanned federal surpluses.

     We will announce renewed, principle-based Equalization and Territorial Formula Financing programs. We will propose a new approach to long-term funding support for post-secondary education and training, and we will propose a new framework for long-term funding support for infrastructure programs.

      In short, those are the issues that gave rise to the problem, and our Government’s approach to the solution.

     There’s a lot more to it, a lot of numbers and angles. There is a lot to consider in deciding how to move forward on the federation’s fiscal arrangements. There are many voices to be heard, and this encounter with your class, with you as stakeholders in our federation, is an important part of my consultation.

But before I take your questions, I’d like to deliver one more message.

     As MBA students looking for ways to enhance the success of your enterprises, I’d ask you to indulge me while I take a few minutes to speak about some of the Government’s other efforts to enhance it’s enterprise — to strengthen Canada’s economic union.

As for each of your businesses, ensuring Canada’s progress and success in the future requires that we put in place today the policies and structures that allow an economy to thrive — so that Canadian families can continue to prosper.

     To be able to afford in the future the services, amenities and security that we enjoy today, one thing we must all strive for is an increase in the value of our per-capita economic output. To be competitive globally, investors and buyers need to be confident that Canada is a market that will grow their money for them.

     There are a few critical things that the federal government is already doing to strengthen the Canadian economy.

     In recent years, the business community has raised concerns that government spending and taxing was limiting our economic progress.

     That is why our government is focusing on reducing the growth in its spending and focusing on responsible program delivery.

     As I mentioned earlier, we have also introduced tax relief for Canadian individuals and businesses. In our first budget we introduced more tax cuts to individuals than the past four federal budgets combined.

     We continue to work on dismantling the barriers to mobility and trade within Canada, the barriers to employment for immigrants, and the barriers to efficient capital markets.

     The Minister of Finance is exploring ways to further harmonize the tax systems in this country to reduce compliance costs for taxpayers and administration costs for business and governments.

     As for human capital and competitiveness, we, like the rest of the developed world, have recognized that a skilled workforce is vital for a strong economy in Canada.

     We need to do everything we can to support an education system that turns out well-trained, well-educated, adaptable workers.

     A good education is the key to a great future for our young Canadians, and we want to ensure we have a workforce ready to work hard and get ahead.

     Our government sees the importance of Canadians pursuing post-secondary education, and in Budget 2006 we provided $370 million in new investments to foster accessibility and excellence at our colleges and universities.

     The business of government is a massive, multi-faceted enterprise. The business of a government in a federal system, I dare say, is even more complex.

     But I believe that everything I have described above demonstrates that this Government is on the right track to build prosperity for our future.

Thank you.